UAE’s small businesses need to go by this To-Do list to be cashflow positive

Renegotiation of rent contract
Do you have a contract in place? It’s unthinkable that small businesses still enter into projects without a contract in hand. Image Credit: Stock image

Late payment is one of the biggest problems facing businesses, with SMEs particularly vulnerable to collapse due to the lack of cashflow. Governments are starting to introduce measures to try and mitigate the effects, but most entrepreneurs don’t have time to lose before the damage is done.

SME owners must know how to prevent payment delays from arising and be more proactive in pushing for collections. Smaller organisations have lots of advantages in the current market, which is why cashflow management is crucial if they want to seize the opportunities available and maximise their agility.

Never start without a contract

It’s surprising how many companies start a project (even the bigger jobs) without a signed contract in place. This is incredibly risky for a number of reasons. When it comes to invoicing, finance teams can use this as a reason to delay and you won’t be in a strong position to challenge non-payment or escalate it through a legal process.

Once you do have an agreement, be prepared to demonstrate that all work has been completed as outlined and your deliverables fulfilled.

Negotiate favourable terms

When you win new work it can feel like the client has the upper hand, but don’t overstretch yourself to accommodate unsuitable payment terms. Now is the time to shorten the cashflow gap by asking for an upfront payment, partial payment in advance, or a shorter payment window.

If the client resists, try offering them an incentive, such as a discount or added value service in return.

Understand customer requirements

Different companies have different internal policies and you don’t want things to take longer than necessary because you addressed the invoice to the wrong person or sent it after their cut-off date. At the start of the relationship, check what they require to make the process as smooth as possible.

For example, do you need to raise a PO and include it on the invoice, who should the invoice be sent to? And what are their steps for authorisation?

Automate accounting processes

Finance automation is one of the easiest ways to save time, increase accuracy, and improve cashflow. There are several simple, cost-effective cloud accounting software options designed specifically for SMEs like Xero, which can automatically create and send invoices, issue reminders, track expenses, and present a clear picture of outstanding payments in real-time.

Using pay now functionality is another way to speed things up and offer clients flexible ways to pay.

Implement clear follow-up

Chasing payments shouldn’t be done ad hoc. Ensure you have a set of standard operating procedures in place that everyone involved adheres to consistently. Things to consider: do you include a late payment penalty on your invoices, how often do you send reminders, when do you follow up with calls and physical visits, and which official documentation will you leverage at which stage e.g. a remedial notice or a dunning letter?

Every piece of communication should be documented and kept on file. Remain polite but don’t be deterred; being persistent can often put you higher up in the queue. Your accountant is there to help with the follow-ups if you prefer not to deal with a client on finance matters directly.

Seek external support

If you feel as though you’ve exhausted every avenue internally, you may want to discuss the situation with a third-party, such as a debt recovery agency or a law firm. The right lawyer can advise you on the degree of breach, as well as the best avenues to secure an amicable resolution and settlement.

They will also guide you should judicial proceedings be required. If you only worry about your debts once they’re stacking up, you’re already in a precarious position. Instead, focus on preventing and limiting the problem to safeguard your business for the future.

Rayhan Aleem

The writer is founder and Managing Partner at Alpha Pro Partners.